Iron Ore

China has rejected the 33% cut in iron ore prices agreed to by Japanese steelmakers like Nippon Steel and one of the biggest ore supplier Rio Tinto; however, the world’s fourth largest mill, Posco of Korea is prepared to accept the deal. For over 40 years, the iron ore market has maintained an annual pricing system, which the Chinese mills are not willing to go with anymore. China is insisting on a cut of as much as 40% that would reverse last year’s surge after six years of gains. The market is now waiting to see whether China -- whose iron ore imports have more than quadrupled since 2002, when prices rose by almost the same rate - is forced to buy from the spot market or fall in line with the annual benchmark system. Meanwhile, the demand-supply situation in the iron ore market may exert greater pressure on price. The chief executive of BHP said that “in the medium term we don’t expect a sharp rebound in overall economic activity; in fact, we believe that economic recovery will be both slow and protracted.”

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Sugar, Oil and Vegetable Oil

• International Sugar Organisation said that sugar deficit will reach
7.8 million tonnes this year, the highest in a decade and more than the estimate of 4.3 million tonnes made in February 2009. Even a bumper harvest in Brazil has not improved the situation.

• International Energy Agency said that the annual global oil demand will be 83.2 million barrels per day, 3% lower than in the previous year. This is also the sharpest decline for oil demand in the past 28 years.

• Vegetable oil imports more than doubled in April due to lower-than-expected production of oilseeds and rise in consumption. Solvent Extractors Association of India said that edible oil import rose to 6.99 lakh tonnes in April against 3.47 lakh tonnes in April last year.

• The Kotak group will launch the country’s fifth national commodity exchange in association with the Ahmedabad Commodity Exchange in which it is picking up a majority equity stake as an anchor investor. Indiabulls has already got approval in-principle for launching an exchange with the public sector trading firm Minerals and Metals Trading Corporation.
 

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Wheat

The ban on futures trading in wheat has been lifted by the government after two years because wheat stocks are in surplus now. Futures trading in rice, tur and urad are still banned. Last month, BC Khatua, chairman Forward Markets Commission, had said that he hoped the ban on all three items would go before the elections and the Elections Commission’s approval had been sought for lifting the ban. The ban was imposed in early 2007 to curb inflation and also ensure sufficient procurement for the buffer stocks. The then finance minister, P Chidambaram had said the ban would be in force until a committee set up under Prof Abhijit Sen submitted its report. Though the Sen Committee argued that there was no correlation between futures trading and inflation and recommended that the ban be lifted, no decision was taken in view of rising food prices and, later, elections. The situation is different now with the rate of inflation running lower than 1% and the granaries overflowing.

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